I have around 10k in credit card debt and I’m currently not paying interest due to balance transfers. About 2k of this is for investing at 0% interest for a year, which I’ll pay back later (I know it’s not the best move).
I also have about 10k in liquid investments, like taxable brokerage accounts and automated investments.
I’m wondering if I should just pay off all the debt with my investments or if it’s better to keep it and pay it down slowly while using balance transfers when necessary, even though there are small fees.
Brooke said:
Honestly, I might not think this is the best strategy, but I would pay off all the debt. I dislike being in any kind of debt.
I guess I’ve gotten used to it lately, which isn’t good. I think I could realistically pay it off in a couple of years, but my wife also has some credit card debt.
Are you confident you can keep financing at 0% for a long time?
Investments come with risks. So having 10k in debt balanced by 10k in investments means your investment might decrease and leave you with more debt.
In a perfect scenario, this plan may help you pay off debt with earned money while keeping your principal.
Realistically, this seems to be a risky approach.
A more stable choice might be to invest in treasuries yielding 4%. Right before the balance due date, you can sell and pay down the credit card debt, getting a guaranteed return similar to what you’d pay in interest.
But keep in mind, this also has its risks. Not knowing what might happen makes carrying a balance potentially harmful, especially if you face difficulties in paying it down later.
Ultimately, do what feels manageable and reduces stress for you. I like the idea of using debt as leverage, but I’d prefer to use it only for risk-free investments unless I can secure a manageable interest rate for a while.
I didn’t give you a direct answer, but I hope I’ve offered you some perspectives to consider as you make the best choice for yourself since no one knows your situation like you do.
ProxyCard1 said:
Are you worried about your credit score? Do you plan to accumulate more debt soon? Will you be able to pay off the debt before the interest kicks in?
I care about my credit score to an extent, it’s at 766 right now. I shouldn’t be getting into more debt and I’ll just do another balance transfer if the interest starts.
@Tsu
When it comes to credit scores, ask yourself if you really need a good score right now before paying off the debt. The utilization factor in your score doesn’t have memory, and it’ll improve as soon as you pay it off. So it’s not crucial if you don’t need a great score now.
This is very risky unless your investment is basically a high-yield savings account. It might make more sense to pay off your debt, lower your utilization, boost your credit score, and look into some basic cash back cards that offer $200-250 with low spending requirements (like 500 or 1000).
Remember that balance transfers usually involve fees, typically 3-5% of the balance. Personally, I’d pay everything off completely before the 0% promotional period ends. Don’t get caught endlessly transferring it from card to card, as you could hit a downturn and find yourself unable to pay it off or unable to obtain another 0% card.
It’s important to pay off the debt before the 0% interest ends. Just remember, if you rely on leverage and something goes wrong with your job and don’t have an emergency fund, you might be in a tough spot.
Before the 0% interest period is up, use your income to pay off your debt. Once your debt is cleared, start building an emergency fund that can cover 4-6 months of living expenses. Keep this in a high-yield savings account and only use it for serious emergencies like job loss or high medical costs.
Invest 15% of your income in a Roth IRA every year. Within that, put it in a diverse fund like VOO (and depending on your age, consider a speculative stock like NVDA). Any extra money can go into your taxable brokerage.
Pay your future self first before spending on things you don’t need.<<<
Set aside 15% in a separate high-yield savings account with different goals: 5% for donations and gifts, 5% for planned purchases, and 5% for fun money.
The other 60% should be kept in the bank for daily expenses (rent/mortgage, car maintenance, internet, groceries, etc.)
After setting up your emergency fund, consider leveraging debt only if you can earn more than 4% and your income can cover the loan. Essentially, it’s like financing your investment—putting down $2k while paying back your debt.
That way, if the market dips and you lose your job, you can repay the loan from your emergency fund and avoid having to sell your investments.
I personally dislike debt and prefer to dollar-cost average from my income. But I also see the benefit of leveraging $7k into a Roth IRA (invested in VOO for an average of 8% returns) and watching that grow tax-free over 30 years while using my income to repay the loan.
Keeping your credit utilization under 30% is crucial for your FICO score, but if you aren’t using that much and can afford to pay it down, maintaining a 0% utilization is definitely better. A utilization under 10% is even better.
If you truly want to build wealth, you need to create a solid foundation first. Start by establishing a spending plan (like the 50/30/20 rule), focus on building an emergency fund, and tackle your debt. When these essential steps are completed, you’ll be in a much better spot to invest in the stock market and build long-term wealth. It’s about preparing yourself for success.